CISI ICWIM Question Answer
When a hedge fund puts together an equity arbitrage position, it will seek to balance respective:
Alphas
Betas
Deltas
Gammas
Equity arbitrage strategies involve balancing betas to hedge risk while profiting from pricing inefficiencies.
Key Concept:
Beta measures systematic risk (market-related risk).
Equity arbitrage strategies aim to neutralize beta while profiting from pricing anomalies.
Example:
A hedge fund buys an undervalued stock and shorts an overvalued stock with matching betas, ensuring market-neutral exposure.
???? Reference: CFA Institute (Hedge Fund Strategies), CISI Wealth & Investment Management.
TESTED 22 Dec 2025
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